Asia stocks stall as US budget talks sour

Asian stock markets met resistance Thursday after talks turned sour among U.S. political leaders trying to reach an agreement over how to avert an economically disastrous "fiscal cliff" before the end of the year. A downturn in U.S. housing starts also hurt sentiment.

Negotiations between President Barack Obama and Republicans in Congress descended into acrimony Wednesday after the White House threatened to veto House Speaker John Boehner's alternative tax plan as the Jan. 1 deadline to avoid sweeping tax increases and government spending cuts draws closer.

Those changes - at a cost of hundreds of billions of dollars - take effect automatically without a deal and have the potential to throw the U.S. economy back into recession. With only two weeks to go before the deadline, markets were "likely to become more nervous by the day," said Mitul Kotecha of Credit Agricole CIB in Hong Kong.

"The market is reacting to comments and conjecture," he added. "But the overall trend is of improving risk appetite, so there is an overall belief that there will be a resolution. The big issue is how quickly will that come."

Japan's Nikkei 225 index fell 0.5 percent to 10,104.89, with investors locking in gains following a strong rally the day before. The Bank of Japan, as expected at the end of a two-day policy meeting, announced it was expanding its asset-purchase program by about 10 trillion yen ($119 billion) to shore up its flagging economy.

South Korea's Kospi rose 0.3 percent to 1,998.81, a day after the country elected Park Geun-hye as its first female president. She has pledged to curb the power of family-controlled business conglomerates but has warned against excessive regulations, Yonhap News Agency said.

Talks in the U.S. to resolve a budget impasse had showed promise early in the week, with both sides offering concessions after an intensive round of talks. Obama offered to freeze income tax rates for taxpayers making $400,000 or less and raise them for people making more. Previously, Obama wanted higher taxes for individual income above $200,000, or $250,000 for couples.

Republican leader Boehner would allow income tax rates to rise for people making more than $1 million per year and would hold rates where they are for everyone making less. The top rate on income exceeding $1 million would go from 35 percent to 39.6 percent. Previously, Boehner opposed allowing any tax rates to go up.

But on Tuesday, Boehner put a backup tax plan on the table in the event no deal was reached before the deadline. The White House immediately threatened to veto the plan, which would block tax increases from being triggered on Jan. 1 on everyone but those whose incomes exceed $1 million.

Separately, U.S. builders broke ground on fewer homes in November after starting work in October at the fastest pace in four years. Superstorm Sandy probably distorted the totals in the Northeast.

The Commerce Department said builders began construction of houses and apartments at a seasonally adjusted annual rate of 861,000. That was 3 percent less than October's annual rate of 888,000, the fastest since July 2008.

Benchmark crude for January delivery fell 32 cents to $89.66 per barrel in electronic trading on the New York Mercantile Exchange. The contract jumped $1.58, or about 1.8 percent, to finish at $89.51 per barrel in New York on Wednesday.

In currencies, the euro fell to $1.3222 from $1.3247 late Wednesday in New York. The dollar fell slightly to 84.15 yen to 84.20 yen.